A car loan was harder to qualify for nationwide in May. Lending standards are now tighter than at any point since February 2021.
The Dealertrack Credit Availability Index tracks the difficulty of qualifying for all types of car loans. The index fell to 96.4 in May, reflecting the tightest lending conditions in almost two and a half years.
Kelley Blue Book parent company Cox Automotive owns Dealertrack.
The approval rate was unchanged from April’s already tight conditions but was down 2.4% year-over-year. Automotive-focused financed companies loosened their approval standards slightly, but banks and credit unions tightened theirs.
Loan terms improved slightly for those who could qualify. The average auto loan rate declined by four basis points (BPs) in May compared to April, while lenders accepted lower down payments and the term of the average loan lengthened. Extended terms can lower monthly payments, though borrowers remain in debt for longer.
The share of new loans that went to subprime borrowers (those with credit scores below 620), already near historic lows, declined further.
Borrowers with distressed credit increasingly have nowhere to go — Subprime and deep subprime loans were nearly a quarter of the market as recently as 2018 but are barely 8% today.
That’s helping to make new cars the province only of high-income Americans. The Federal Reserve has increased interest rates ten consecutive times to rein in inflation. But those moves put cars out of reach for many buyers, leading automakers to build mainly high-priced cars advertised to wealthy buyers with strong credit scores.
America’s automakers today sell just ten cars with prices under $25,000. Just five years ago, they sold 36 such models.
